Dell pondered going private; Would the move make sense?

Michael Dell pondered taking his namesake company private, but didn't elaborate on what conditions would make such a move reality. Amid Dell's transformation going private could make sense.

Michael Dell pondered taking his namesake company private, but didn't elaborate on what conditions would make such a move reality.

Dell's comments, made at a Sanford C. Bernstein conference Thursday, got some attention from Reuters, the Wall Street Journal and investors who pushed Dell shares higher. It's unclear how seriously the private option was for Dell. Most public company CEOs probably have at least thought about going private. Who need Sarbanes Oxley, quarterly guidance and managing Wall Street expectations?

Here's the exchange between Sanford Bernstein analyst Toni Sacconaghi and Dell from Thomson Reuters transcript:

Sacconaghi: Have you considered taking the company private?

Dell: Yes.

Sacconaghi: That's more succinct than I would think. What would be a galvanizing event for you to consider it much more seriously?

Dell: No comment.

Sacconaghi then asked Dell about succession planning and how long the CEO would stick around. Dell, 45, said he was "completely committed to continuing to run the business for a long period of time." The board understands what the succession plan would be, but Dell has "every intention to continue running the company for the foreseeable future."

The going private issue is a natural question for Dell given that the company is in the middle of transforming itself into more of a services company via the acquisition of Perot Systems. Dell is also planning to pull the trigger on more acquisitions to fill in product gaps and acquire R&D teams. Dell said:

A lot of the acquisitions that we're looking at are network-effect acquisitions where we can essentially use our distribution and platform broad customer access. Occasionally you'll see us build a new platform using an acquisition, as we did with Perot Systems, to dramatically expand our kind of service and solutions capabilities.

Dell said the company didn't navigate a business transition well and much of the work that's underway today revolves around focusing on the data center. Dell gave him an incomplete grade on the company's transformation because it's not complete. Dell candidly diagnosed what went wrong:

I think one of the dangers of having a strong position and being in an incumbent is you tend to maybe overlook some of the disruptive things or challenges. And certainly, for that period that you mentioned, 2000 to 2006, and even for the kind 10 years or 15 years prior to that, Dell had a pretty uninterrupted run of growth in revenues and profits and cash flow.

And I think one of the things that happened is that our competitors, having been kind of soundly defeated, went back into their cave and developed a new model and started to implement that. And that fundamentally changed the equation for us. There were also clearly shifts going on as customers started to focus more on services and solutions and the value was shifting from the fundamental client product into the data center.

And as we kind of looked at all that, and I would say it probably took us a little bit longer than we would have liked to figure this out, we needed to make some fundamental adjustments to transform the business, to really say how do we change our sales motion from a product centric one to increasingly about services and solutions?

As Dell talked about navigating industry inflection points, creating intellectual property and organizing a company that now has 100,000 employees you can almost picture the CEO thinking about going private. Simply put, the heavy lifting involved in transforming a company is often best carried out sans quarterly reports and all of the things publicly traded firms endure.


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